Why we think BI need to raise interest rate anytime soon?
Key Takeaways
• Despite CPI rate has increased at the fastest pace in the last 5 year, majority economist expect BI to keep interest rate unchanged on July-22.
• Some economist citing BI would kick start policy rate hikes after reserve requirement increase is accomplished in Sep-22.
• However, based on our assessment, there are urgencies why BI need to raise interest rate anytime soon.
• Given the oil prices already hit USD100/bbl level; trend of IDR depreciation; strengthening consumers demand; accelerating loan growth; potentially pass on higher input price; the uptick on inflation expectation as well as probability of Fed’s more aggressive tightening, we welcome BI to raise 7-day reverse repo by 25 bps this time.
• We believe it is better to start earlier (pre-emptive) in order to manage inflation expectation as monetary policy has a lag period to be transmitted.
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